DCIT, CIRCLE-5(1), KOLKATA, KOLKATA vs. M/S. ADVENTZ INVESTMENTS AND HOLDINGS LTD., KOLKATA

The only issue is to be decided is as to whether the CIT(A) is justified in allowing a deduction of Rs. 71,84,387/- on account of bad debts written off in the facts and circumstances of the case.

The brief facts of the case are that the assessee is a company and engaged in the business of financing, investment and shares and securities and derives rental 2 income. The assessee filed return of income showing a total income of Rs. 2,18,19,050/-. Notices under section 143(2) and 142(1) of the Act were issued. In compliance the assessee filed the details.

The AO on an examination of record found that the assessee written off the interest which were not received from three parties i.e. ENSO Ltd., Dunesh Kumar Singhania & Willard India Ltd. In explanation, the assessee filed all the details of interest received and interest written off in this regard. According to AO the loans advanced to the said parties were still intact and the assessee cannot write off interest on such loans. Accordingly deduction under section 36(1)(vii) denied and a sum of Rs. 7,14,387/- were added to the income of the assessee and thereafter the said amount has been rectified as 71,84,387/- vide his order dated under section 154 of the Act.

Before the CIT(A), that it was contended that the assessee is a non-banking financing company registered with the Reserve Bank of India. The assessee has submitted the impugned addition which constitutes the interest being not receivable from these parties to whom inter corporate deposit were advanced. The assessee also contended that the taxes were paid on the said interest income in previous years and the same has been written off during the year under consideration. The CIT(A) considering the submissions of the assessee and by relying on the decision of Hon’ble Supreme Court and in the case of TRF 3 Ltd. reported in 323 ITR 397 allowed the deduction to the assessee under section 36(1)(vii) read with section 36(2) of the Act. The relevant portion of which is reproduced here- in-below: “I have considered facts of the case. The appellant is a non- banking finance company registered with RBI. It has, in the earlier years, given loans to the three parties i.e. ENSO Ltd., Dinesh Kumar Singhania and Willard India Ltd. in course of its regular business of finance. Interest on these loans had been accounted for on accrual basis and had been offered for taxation in the earlier years. In the year under consideration, the appellant has written off the said interest. The appellant was not receiving interest from these parties and therefore, the loans had been classified as NPA. Since the loans had become NPA, the appellant stopped recognizing interest income on the same and has written off income booked in earlier years amounting to Rs. 71,84,387/-. As per provisions of section 36(1)(vii), an assessee can claim deduction in respect of any bad debt written off as a irrecoverable in the accounts subject to provisions of sub-section (2). Sub-section (2) of section 36 prescribes, that such debt should have been taken into account in computing income of the assessee in the previous year or an earlier previous year or should be money lent in the ordinary course of business of banking or money lending carried on by the assessee. In the appellant’s case, interest under consideration relates to loans given in ordinary course of business, interest have been taken into account in computing income of earlier years and has been written off in the accounts for the year under consideration as irrecoverable. Thus, it fulfil all the conditions prescribed u/s 36(1)(vii) read with section 36(2) of the I.T. Act. It is also not the case of the assessing officer, that the write off was not bona fide. It has been held in a number of decisions including that of Hon’ble Supreme Court in the case of TRF Ltd. vs CIT 323 ITR 397 that after April 1, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. As long as the conditions prescribed u/s 36(1)(vii) and 36(2) were satisfied deduction for bad debt was to be allowed. Considering this and the facts and circumstances of the case, disallowance made by the assessing officer in respect of interest receivable written off is deleted.”